Corporate Law

Hiring Employees in Germany: Legal Aspects for Companies

Hire an employee in Germany: what are the legal steps?

In order to legally hire an employee in Germany, companies must follow a series of procedural steps.

1. Register with the Social Security Office (Sozialversicherung): The employer must obtain a registration number for social insurance purposes and report new employees to the relevant insurance institutions. This covers health, pension, unemployment, and long-term care insurance.
2. Obtain a company number (Betriebsnummer) from the Federal Employment Agency (Bundesagentur für Arbeit): This unique identification number is required to report employees to the social security authorities.
3. Notify the Tax Office (Finanzamt): The employer must report the employee to the tax authorities to ensure proper income tax is withheld. The employee’s tax ID and religious affiliation (which affects church tax) must also be recorded.
4. Draft a written employment contract: German law requires a written employment contract that clearly states the terms and conditions of employment. Verbal agreements are insufficient and risky.
5. Register with the Employer’s Liability Insurance Association (Berufsgenossenschaft): This registration covers workplace accident insurance and is mandatory for all employers.
6. Comply with minimum wage regulations: As of 2025, the federal minimum wage must be paid to all employees, with exceptions applying only to very specific sectors.

Types of employment contracts under German law

Germany offers a diverse and well-structured framework of employment contracts, designed to accommodate a variety of business needs and employee situations. Each type of contract has specific legal obligations and implications, particularly with regard to social security, taxation, working hours and protection against dismissal.

• Permanent Employment Contracts (Unbefristeter Arbeitsvertrag): standard and most common form of employment in Germany is the permanent (open-ended) contract, also known as a ‘Unbefristeter Arbeitsvertrag’. This type of contract provides job security and full integration into the company’s social security and labour law protections. It has no end date and requires formal termination to end the employment relationship. Under German law, this is the default assumption, and fixed-term contracts must be explicitly justified to deviate from this standard.
• Fixed-term employment contracts (befristeter Arbeitsvertrag): Fixed-term contracts are permitted under the Teilzeit- und Befristungsgesetz (TzBfG – Act on Part-Time and Fixed-Term Employment). They are commonly used for project-based work, temporary replacements (e.g. maternity leave) or situations where funding is limited. Fixed-term contracts can be used without justification for a maximum of two years, with up to three extensions within that period. Companies must ensure that fixed-term contracts are concluded in writing before the employee starts work. Oral agreements are invalid and the contract would automatically be considered permanent.
• Part-time contracts (Teilzeitverträge): any schedule that is less than the company’s full-time hours (usually less than 35–40 hours per week) is considered part-time. Part-time contracts have pro-rated salaries, holidays, and benefits. They are becoming increasingly common in Germany, particularly among students, parents and older workers. Legally, part-time employees must not be treated less favourably than their full-time counterparts. Employees have the right to request part-time work, and employers may only reject such requests if they can prove a legitimate operational reason.
• Freelance Contracts (Freier Mitarbeiterverträge): Independent contractors or freelancers are not employees in the traditional sense and are therefore not entitled to employment benefits such as paid leave, sick pay or unemployment protection. However, German authorities scrutinise these arrangements due to the risk of ‘Scheinselbstständigkeit’ (false self-employment). If a freelancer is found to be working under conditions that are equivalent to those of an employment relationship, such as fixed working hours, direct supervision or receiving their sole income from one client, they may be reclassified as an employee. This can result in the hiring company having to pay retroactive social security contributions, fines, and potential tax penalties.
• Minijobs (geringfügige Beschäftigung): Minijobs are a unique German form of marginal part-time employment designed for low-income earners. The monthly income must not exceed €538 (as of 2025), and employees are not obliged to contribute to most social security branches, although pension contributions apply (with an opt-out available). Despite their limited scope, minijobbers are still entitled to the minimum wage, paid holiday and continued pay during illness. These contracts are common in the retail, hospitality and household sectors.

Regardless of the type of contract, German law (specifically the Nachweisgesetz) stipulates that certain terms must be provided in writing and signed by the employer. These include:

• Names and addresses of both parties
• Start date and (if applicable) end date of employment
• Job title and duties
• Workplace location(s)
• Regular working hours
• Remuneration and payment intervals
• Vacation entitlement
• Notice periods
• Reference to applicable collective agreements, if any

Failure to provide this documentation in a timely manner may result in administrative penalties and cause uncertainty in the event of disputes.

Probation period

The probation period, known as Probezeit in German, is a standard feature of employment contracts in Germany. It is a mutual trial period, enabling both the employer and the employee to assess whether the employment relationship is suitable. Although not mandatory, it is widely recommended and frequently used, particularly in permanent employment contracts.

This initial period is governed by specific legal norms that influence notice periods, termination protection and performance and conduct expectations.

According to Section 622(3) of the German Civil Code (Bürgerliches Gesetzbuch – BGB), the maximum length of a probationary period is six months.

One of the most significant aspects of the Probezeit is the simplified termination process. During this period, both the employer and the employee can terminate the employment contract with two weeks’ notice and no reason is required. After six months, the standard statutory or contractual notice periods apply.

Longer probation periods are not legally valid, even with the agreement of both parties.

Termination rules

Terminating an employment relationship in Germany is neither simple nor risk-free. German labour law is renowned for its robust framework of employee protection, especially after six months of employment with a company employing more than ten full-time workers.

After this period, employers must have a valid reason for ordinary termination (Ordentliche Kündigung), which must fall into one of the following categories:

• Operational reasons (Betriebsbedingt): Restructuring, downsizing or outsourcing. The employer must demonstrate that the position is no longer needed and that all internal alternatives have been exhausted.
• Personal reasons (Personenbedingt): Long-term illness or loss of a qualification necessary for the job. The employer must demonstrate that, despite efforts to accommodate, the employee can no longer fulfil the role.
• Behavioural reasons (Verhaltensbedingt): Repeated lateness, insubordination or theft. In most cases, a prior written warning (Abmahnung) is required before termination.

If challenged, the employer must prove the reason in court.

Extraordinary termination (fristlose Kündigung) is also possible, but only in serious cases of misconduct that make it unreasonable for the employer to continue the employment relationship, even during the notice period. Examples include fraud or theft, physical assault and serious breach of trust.

This type of termination must be issued within two weeks of the employer becoming aware of the misconduct and thorough documentation is required. Legal counsel is often essential to assess whether the grounds are sufficient.

Rather than terminating the contract unilaterally, both parties can sign a mutual termination agreement (Aufhebungsvertrag) that ends the employment relationship on agreed terms (e.g. severance pay, a reference letter and an agreed end date). This avoids litigation, but the employee may face disadvantages regarding unemployment benefits unless the agreement is carefully drafted.

In companies with a works council, the employer must consult the council before terminating an employee’s contract. Failure to involve the council can invalidate the termination.

Social security and payroll obligations

In Germany, employers are responsible for deducting and remitting social security contributions.

• Health insurance (Krankenversicherung)
• Pension insurance (Rentenversicherung)
• Unemployment insurance (Arbeitslosenversicherung)
• Accident insurance (Unfallversicherung)
• Long-term care insurance (Pflegeversicherung)

These costs are usually shared between the employer and the employee, with the employer managing the contributions via payroll.

Close collaboration with a payroll specialist or tax advisor is essential. You might also need a corporate lawyer in Germany who can coordinate this process to ensure legal compliance and avoid audit risks.

Employee rights and employer obligations in Germany

Germany’s employment laws offer employees robust protection:

• Paid vacation: Employees are entitled to a minimum of 20 days’ paid holiday per year (based on a five-day working week), and often more under collective agreements.
• Sick leave: Employees receive their full salary for up to six weeks of illness, after which health insurance may take over with reduced payments.
• Parental and maternity leave: Mothers are entitled to maternity leave (usually 14 weeks), and both parents may take parental leave for up to three years.
• Protection against discrimination and unfair dismissal: Anti-discrimination laws (AGG) and dismissal protections safeguard against arbitrary or prejudicial treatment.

Due to the potential for disputes, companies must take preventive legal steps to ensure that their employment practices comply with statutory requirements and case law.

Legal support for employment compliance and contracts

At LSI Berlin, we provide tailor-made legal support to help businesses hire, manage and protect their workforce with complete peace of mind. Our team of experienced labour law attorneys and employment compliance experts will ensure that your HR practices are effective and fully compliant with German labour regulations.

We offer end-to-end legal guidance on employment contract drafting and review, company policies and HR documentation, ongoing compliance monitoring, termination and dispute resolution.

Contact LSI Berlin today to build a compliant, secure, and scalable workforce in Germany.

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